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Employment Status (Review)

Volume 606: debated on Wednesday 2 March 2016

Motion for leave to bring in a Bill (Standing Order No. 23)

I beg to move,

That leave be given to bring in a Bill to make provision about the establishment by the Secretary of State of an independent review of the operation of the Employment Rights Act 1996 in relation to the determination of employment status and dispute resolution mechanisms for employers and employees relating thereto; and for connected purposes.

My Bill calls for something that is long overdue: a full, independent review into the law surrounding self-employed workers and their rights. The need for this was demonstrated by the collapse of City Link in my constituency and those of other Members. The delivery firm went into administration just over a year ago, with employees being informed on Christmas day 2014. Roughly 2,700 people, along with 1,000 contractors, lost their jobs. Those contractors, and the situation that was forced upon them, form the inspiration for this Bill.

A number of concerns were expressed about City Link’s collapse and about how it might have been handled better. It provoked a joint report from the Business, Innovation and Skills Committee and the Scottish Affairs Committee—a report on the impact on employment of the closure of City Link was published in March 2015. City Link viewed its drivers as self-employed. The drivers provided their own vans, but were required to wear the company’s livery and were not permitted to work for anyone else. Those drivers were employees in all but name.

The Business, Innovation and Skills Committee stated:

“Contractors and sub-contractors providing drivers for City Link have been hit particularly hard by its closure.”

That is because they were unsecured creditors and were unlikely to receive the vast majority of the wages they were owed. The administrators’ statement of proposals found that they could expect to receive less than 2p in the pound. The Select Committee further noted that the financial difficulties of the contractors were worsened by the fact that they had been encouraged to take on additional staff and vehicles and to work longer hours in the lead-up to Christmas, despite the doubts over the company’s future. Gordon Martin, of the RMT, told the Committee that, due to assurances from City Link:

“People, through the business, went out and bought additional vans to put on the road. This is a human tragedy across the piece. People are thousands of pounds in debt. Who knows how they are going to pay?”

That context is important in outlining the vulnerable position subcontractors can be in when a company goes into administration. The underlying issue here that I wish to raise is bogus “self-employment”. The RMT told the Committee that the self-employed drivers were

“tied to the company; they have to wear the uniform and they have to use the company livery on the vehicles…That is the way the market is, unfortunately, but they are employees by any definition, other than the fact that they have an arrangement in place where they seem to be divorced from the company but are employed by it.”

Crucially, the Select Committee accepted the RMT’s analysis that this was direct employment in everything but name.

Why does this matter? All rights under employment law are contingent on employment status, be it as an employee, worker or someone self-employed. The self-employed have few rights. They are not entitled to receive sick pay, holiday pay or the national minimum wage, and are responsible for their own taxation. Workers have a number of basic rights, including the right to the minimum wage and annual leave. Employees have the same rights as workers, plus additional rights, including the right not to be unfairly dismissed and the right to redundancy pay. An employee is an individual who works under a contract of employment, which means that employment rights turn on whether or not the contract under which a person works is a contract of employment.

Self-employed persons are instead regarded in law as providing a service for a customer or client. The distinction is often described as the difference between a “contract of service” and a “contract for services”. The question that needs addressing is how to make sure that people are on the type of contract that accurately reflects their work. I am not in any way opposed to people being self-employed—I am sure that in many situations it is extremely useful. What I object to is people being denied the right type of contract for their work and therefore not getting the employment rights to which they should be entitled. The difficulty is: how does someone know whether they are on the right type of contract? The Select Committee found that these drivers were employees in all but name, but that is no consolation to those affected. It should not be so difficult to determine whether a contract is an employment contract or not, or for someone to find out whether they are on the appropriate contract for their work.

Bogus self-employment is when an individual is treated by a company as being self-employed but their relationship with the company exhibits the features of an employment relationship. If the company says the individual is self-employed and the individual says he is actually an employee, there is only one way to settle the issue and that is by going to court. A contractor who wishes to challenge their employment status has to go to court, which is both arduous and expensive. Furthermore, the question of employment status is one of the issues most widely litigated on in employment law.

The House of Commons Library has kindly supported me in understanding the legal tests developed by courts and tribunals. Substantial criteria are involved, each of which is subject to volumes of case law, and this level of complexity in the law worsens the problem. An individual might suspect that he is an employee but would be unlikely to know whether or not he is, because the law is so complex. That means that some companies may be wrongly categorising employees as self-employed persons, depriving them of employment rights.

At the time of the City Link collapse I met the then Business Secretary, who, to his credit, was aware of this difficulty. Let me quote at length what he told the Select Committee:

“Before the City Link issue came up, I had initiated a thorough investigation of employment status, which we are now undertaking…there is what appears to be a growing number of people who are not genuinely self-employed but have, in some sense, fallen through the cracks. We are trying at the moment to get a handle on…how, at least through legislation, we might address that problem. We certainly acknowledge that it exists. It is a part of this wider debate…I would hope my successor, whoever it is, takes this seriously, because there is a gap.”

He then announced the review in October 2014. It appears that this review is internal, and we still do not know the outcome. In March 2015, in answer to a question from my hon. Friend the Member for Streatham (Mr Umunna), the then Minister responded by saying that

“a number of teams from across the Department for Business, Innovation and Skills have been feeding into the employment status review.”

Yet, in answer to a parliamentary question asked by my right hon. Friend the Member for East Ham (Stephen Timms) only this month, the Financial Secretary to the Treasury said that

“officials from HM Treasury, HM Revenue and Customs, the Department for Work and Pensions, and the Department for Business, Innovation and Skills will form a Cross Government Working Group for Employment Status early this year.”

I can only ask this: what have they been doing for the past year?

It is time for a proper review, led by experts in employment law, and I suggest that a leading employment lawyer is appointed to chair the review. We need greater clarity as to the criteria for “self-employment”. We need a forum where individuals can query or challenge their employment status without having to go to court, and I suggest that an ombudsman or a Government agency might be appropriate. We need penalties for companies that intentionally use bogus self-employment contracts, and we need to give full consideration to whether the rights and support we provide to the self-employed are adequate in today’s world.

Question put and agreed to.


That Mr Jim Cunningham, Chris Stephens, Colleen Fletcher, Mr Geoffrey Robinson, Mr Dennis Skinner and Steve McCabe present the Bill.

Mr Jim Cunningham accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 11 March, and to be printed (Bill 146).